Since going public in March, Trump Media has seen its shares plummet by 70%, yet the company still holds a market value of approximately $3 billion. However, experts are questioning whether that figure is warranted, given the company’s financial performance and growth prospects.
Financial Struggles and Overvaluation
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Jay Woods, chief global strategist at Freedom Capital Markets, pointed out the disparity between Trump Media’s current valuation and its financial data. Last quarter, the company reported just $837,000 in revenue and a staggering net loss of $16.4 million. Woods argued that these numbers don’t align with the company’s hefty valuation, which he deems “unjustifiable.”
One notable metric, the price-to-sales ratio, stands at a whopping 1,864 times, an alarming figure given that the company has generated less than $2 million in revenue over the past twelve months.
Limited Growth for Truth Social
A major factor contributing to Trump Media’s challenges is the growth limitations of its social media platform, Truth Social. Woods highlighted that the platform’s political focus hinders its potential for user retention and expansion. He also noted that its success may be closely tied to Donald Trump’s political relevance, particularly in light of the upcoming election.
Woods emphasized that Truth Social has failed to establish itself beyond the realm of politics, reducing its appeal to a broader audience. Should Trump lose political influence or the election, the platform’s future growth prospects could be further diminished.
Rising Competitive Pressure and Insider Selling
Another issue affecting Trump Media’s stock is competition from X, the platform formerly known as Twitter, which Trump has recently been using more frequently. This increasing reliance on a rival platform could undermine Truth Social’s ability to grow its user base.
In addition to competitive pressures, the recent expiration of a lock-up period allowing insiders to sell their shares has intensified the downward pressure on Trump Media’s stock. United Atlantic Ventures, an investment group founded by two former contestants from Trump’s “Apprentice” show, has already sold nearly its entire 11-million-share stake, earning over $100 million.
Concerns Over Trump’s Stake
There is also speculation surrounding Trump’s 57% ownership of the company. While he has previously stated that he would not sell his shares, there is no guarantee that he will stick to that commitment.Woods cautioned that if Trump decides to sell a portion or all of his stake, it could trigger panic among other investors, potentially leading to a sharp decline in the stock’s value.
Source; Business Insider
